The Day Ahead: Stocks Pause as Fed Flags Tariff Uncertainty and Growth Risks

Stocks Stall as Fed, Geopolitics Inject Uncertainty

U.S. equities closed narrowly mixed on Wednesday as traders reacted to the Federal Reserve’s June policy update and geopolitical headlines out of the Middle East. The Dow Jones Industrial Average slipped 44.14 points, or 0.10%, to 42,171.67. The S&P 500 Index edged lower by 0.03% to 5,980.87, while the Nasdaq Composite managed a 0.13% gain to finish at 19,546.27.

Investors had largely priced in a rate hold going into the session, but lingering inflation concerns and warnings about economic growth left markets in a wait-and-see mode. Risk appetite remains cautious amid rising tensions between the U.S. and Iran and ongoing tariff-driven economic uncertainty.

The U.S. cash equity markets are closed today in observance of the Juneteenth National Independence Day holiday.

Soft Patch in Data Strengthens Case for Caution

Recent data reflects mounting evidence of economic softening:
• Initial jobless claims fell to 245,000 but remain at an elevated four-week average, the highest since August 2023
• Retail sales excluding gasoline declined 0.8% in May, led by a pullback in vehicle purchases following tariff-related front-loading
• Housing starts dropped 9.8%, with multifamily down 29.7% and single-family permits falling 2.7%
• NAHB Builder Confidence Index slipped to 32 in June, marking the fourth decline in five months

These data points support the Fed’s more cautious tone and reinforce concerns that tariffs, high interest rates, and slowing domestic demand may further restrain growth into Q3.

Fed Holds Fire but Flags Inflation Risks From Tariffs

The Federal Reserve held the federal funds rate steady at 4.25%–4.50% on Wednesday, as expected. However, the Summary of Economic Projections reflected a modestly stagflationary tone:
• 2025 GDP forecast downgraded to 1.4%
• Core PCE inflation raised to 3.1%
• Median projection shows two rate cuts by year-end

Chair Jerome Powell emphasized uncertainty around the inflationary effects of tariffs, noting the Fed is “well positioned to wait” for further data. He added that the size and duration of the tariff impact remain unclear.

Markets interpreted the messaging as cautious but still leaning dovish. Futures pricing now shows a 60% probability of a 25-basis-point cut in September, up from 53% the day before.

Index Levels Reveal Shifting Short-Term Sentiment

Dow Jones Industrial Average: Wednesday’s close below the 50-day SMA at 42,518.52 signals loss of near-term momentum. The next area of interest lies at the 200-day SMA at 41,368.20, followed by key support near 40,564.16.

Nasdaq Composite: Price action remains firm with Wednesday’s close at 19,546.27, well above the 50-day and 200-day SMAs at 18,252.70 and 18,585.68. Traders are watching 19,800.46 for breakout confirmation.

S&P 500 Index: The index is consolidating after a strong run. Wednesday’s 5,980.87 close holds comfortably above the 50-day SMA at 5,717.10 and the 200-day SMA at 5,812.52. Immediate support is seen near 5,913.40, while resistance remains at the recent swing high of 6,059.40.

Markets Look for Clarity in Data and Diplomacy

With the Fed decision and press conference in the rearview, traders will focus on geopolitical risks and upcoming inflation data, particularly the PCE Price Index due next week. Markets appear range-bound heading into the weekend, but underlying volatility remains elevated. Equity direction will depend on whether incoming data confirms the Fed’s cautious stance or shifts expectations again.

More Information in our Economic Calendar.